In recent years, the legal position on holiday pay, how it is calculated, whether it carries over, and how it is treated in the context of sickness absence have been subject to a variety of different case law decisions.
The Court of Appeal made a reference to the European Court of Justice on a number of questions concerning holiday pay, accrual and entitlement to holiday pay arising from the case of Conley King v The Sash Window Workshop Limited.
The Claimant was a self-employed commission only paid contract, from 1 June 1999 until his retirement on 6 October 2012. Any annual leave taken during this period was not paid. Mr King successfully brought a claim in the employment tribunal that he was a worker, and therefore entitled to:
- Pay for accrued but untaken holiday from his final leave year;
- Holiday pay for unpaid leave taken between 1999 and 2012, (across all his holiday years); and
- Any other pay in lieu of accrued but untaken holiday, when the Claimant had not taken any leave.
When the case reached the Court of Appeal, it was accepted that the Claimant was a worker, and was entitled to pay for accrued but untaken holiday from his final year, and holiday pay for the leave he had actually taken between 1999 and 2012 (points 1 and 2). The remaining point of dispute was the third type of pay, payment in lieu of accrued but untaken leave from the leave years 1999 to 2012.
The Court held that EU law requires workers to know that they will be paid before holiday is taken. Otherwise, uncertainty is a disincentive for an individual to book holiday, which is counter to the intention of the legislation for workers to have leisure time, and to ensure time off for health and safety reasons.
They also held that a worker can carry over and accumulate any untaken leave until the end of the employment relationship. In the context of this judgment, leave is the minimum statutory leave of twenty days (excluding eight UK domestic bank holidays).
This judgment has important and binding consequences for UK courts considering gig economy employment status cases. For example, Uber is apparently appealing the decision of the EAT that it’s staff are workers to the Court of Appeal. If repeatedly unsuccessful, they will potentially be faced with claims from hundreds of workers for unpaid holiday over several years.
In response to the decision in Bear Scotland, the government introduced the Deduction from Wages (Limitation) Regulations 2014, which limited claims for any money owed to claimants from employers to the last two years of deductions. This decision has the potential to undermine the lawfulness of that two year limitation.
The Bear Scotland case stipulated that wherever there was a three month gap between deductions (so a three month gap between the employee taking and being paid for annual leave) is potentially out of time. This new decision means that this case law is also open to challenge.
This case principally concerns holiday pay which was never paid. However, this decision could be used by workers who received some holiday pay, (but not their full entitlement) to argue that their claims for back pay should cross several years and should not be time-barred by gaps in leave.
We await the final judgment of this matter from the Court of Appeal (who will in all likelihood simply reiterate the decision).
All employers must ensure that staff are paid their correct holiday to avoid being subject to unlawful deduction from wages claims.